0
$\begingroup$

Why do some stocks sometimes trade flat after releasing their earnings? Even if good or bad earnings are presented. My suggestion is that the options of the underlying stock have a very high implied volatility and it would be more profitable to be short the options than long the options. Then the party owning the short position tries keeping the stock flat. This party must be I assume the market-maker or another party with large capital at his disposal.

The question may seem easy, however I am pondering on it for two weeks. I have read the book McMillian on Options and searched on Google Scholar. Unfortunatly, my attempts were not fruitful. Would someone please be so kind and explain why this happens?

Improve this question
$\endgroup$

1 Answer 1

Reset to default
1
$\begingroup$

There is no scientifically provable answer on why a stock price behaves in a particular way. It is a balance of supply and demand in common shares. If buyers and sellers both are happy with the current price and the sentiment is in balance then the price will not move. Basically, the earnings release brings no new information, everyone who already owns stock is content and there are few new potential owners.

Flat after ER is often happens when the firm pre-announces its financial numbers. Then the ER is a formality and the stock does not move.

Improve this answer
$\endgroup$
1
  • $\begingroup$ Oke thank you for your answer. The part of supply and demand makes sense. However, not so long a go three companies releases their earnings on the same day after the market closed. Their stocks made big moves in the aftermarket. Then on the next day, during the regular trading hours the big gains or losses where gone and the stocks traded flat. The stocks about which I am talking about are Visa, Starbucks and Pandora Media. Normally I would also go for supply and demand, but in this specific case it seems strange. $\endgroup$
    – Jordi Ozir
    Aug 5, 2016 at 13:16

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.